State mulls options for jobless-fund fix

State lawmakers are preparing to borrow hundreds of millions of dollars on the open market to restore the unemployment trust fund to solvency, at least on paper.

Senate President Andy Biggs, R-Gilbert, who shaped the plan, said it’s better than the alternative.

The issue is the last bit of fallout after the state’s unemployment trust fund went broke in 2010. That was because the recession — and the double-digit jobless rate that came along with it — turned out to be longer and deeper than anyone had anticipated.

More to the point, unemployment insurance premiums from employers that had boosted the fund to $1 billion during the good times proved insufficient.

Being broke did not absolve Arizona from paying jobless benefits. So the state went to the federal government for a loan, and employers even agreed to a two-year surcharge on their premiums to repay the amount.

The state at one time was $420 million in the hole; it has been digging out ever since.

It was unable to pay off the loan by last November. So the federal government imposed a penalty on employers equal to three-tenths of a percent on the first $7,000 of each worker’s salary.

That translates to $21 a year for every employee.

Mark Darmer, who runs the unemployment and rehabilitation services for the state Department of Economic Security, said there’s another deadline Nov. 10.

Right now, Darmer estimated the outstanding balance at about $310 million. But he said there is no way that can be paid off by the next deadline and that the account would still be $90 million in the red.

That would mean another $21 charge per employee on top of the first one.

That’s only part of the problem, Darmer said. The federal government will continue its loan — at an interest rate of more than 2 percent.

He said the state can do better.

“The interest rates you see on the private market are right now hovering around the 1 percent or less-than-1 percent level,” he said.

Darmer calculates that, at the lower interest rate, the remaining $90 million could be paid off sometime in the second quarter of next year, even without a new premium surcharge on employers.

HB 2173 actually authorizes the Department of Economic Security to issue up to $200 million in what are called “tax anticipation notes.” That not only would pay off what is left of the federal loan, it would ensure there is enough cash for the state’s jobless to continue to get their payments.

The Arizona Constitution effectively prohibits the state from borrowing money in its own name and backed by the state’s assets.

But lawyers have concluded that the state can issue what effectively are “revenue bonds.”

The key difference is that repayment is pledged from future dollars from a specific revenue source. In this case, that source is the insurance premiums that employers are required to pay for their workers.

What makes them legal is that lenders cannot seek to attach state assets if these revenues prove insufficient to make the debt payments.

Employers pay premiums based on how frequently they lay off workers who are determined eligible for benefits.

Companies with low turnover can have rates as low as a fraction of a percent of the first $7,000 of each employee’s wages. The top rate, with few exceptions, is 5.4 percent of that $7,000 figure, or $378 a year.

By law, workers who lose their jobs through no fault of their own are entitled to one-half of what they were earning for up to six months.

But Arizona caps weekly benefits at $240 a week, regardless of how much the employee was earning, the second-lowest rate in the nation. Only Mississippi pays less.

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